Chinese economic activity contracts
Tourism; Chinese economic data; Reserve Bank statement
- Tourism: Tourist arrivals fell by 3.3 per cent in January to be down by 2 per cent from a year ago – the biggest annual decline in 8 years. Aussie tourist departures fell by 1 per cent in January, but were up 1.5 per cent over the year.
- Baton change: New Zealand is now the largest source of tourists to Australia. Over the past year, a record 1,436,900 Kiwi tourists flew across the Tasman Sea, up by 3.5 per cent on the year earlier. And over the year to January, 1,427,100 tourists came to Australia from China, down by 1.9 per cent on the year earlier – the biggest annual decline in 10 years.
- Chinese data (January-February): Retail sales fell at a 20.5 per cent annual rate (forecast -4 per cent) with production down 13.5 per cent (forecast -3 per cent); and fixed asset investment down 24.5 per cent (forecast -2 per cent). The unemployment rate rose to a record high of 6.2 per cent. Data is combined in the first two months to take into account seasonality around the Lunar New Year.
- Reserve Bank Statement: Governor Philip Lowe issued a statement yesterday and said, “The Bank will announce further policy measures to support the Australian economy on Thursday”.
Tourism data is important for airlines, hotels and booking agents. The Chinese data is important for exporters, especially rural producers, consumer goods, mining and energy companies.
What does it all mean?
- It’s been a bad start to the year for Australia’s tourism industry. Bushfires, smoke haze, floods and now the coronavirus pandemic have all hit tourism operators hard. Airlines have cut capacity due to reduced demand because of global travel bans. In fact, tourist arrivals fell by 2 per cent in January from a year ago – the biggest annual decline since September 2011. The Federal Government’s recently announced $17.6 billion fiscal stimulus package includes a $1 billion fund to assist the tourism sector during these very difficult times.
- Australia’s largest trading partner – China – suffered an historic slump in economic activity in the first two months of the year due to Beijing’s measures to contain the coronavirus (COVID-19) outbreak. The shutdown of factories, restaurants, shopping malls and travel over the Lunar New Year hit retail spending, industrial production and fixed asset investment in January and February.
- In fact, China’s activity data was the weakest on record since all series began in 1995 – contracting by up to 24.5 per cent from a year ago. Unemployment surged by 1 percentage point to a record-high 6.2 per cent in January/February on the back of the contraction in the economy.
- The Chinese economy is now likely to contract in the March quarter for the first time on record (since 1989 records began). But Bloomberg estimates that the back-to-work rate is now between 80-85 per cent for the week ending March 13 with significant stimulus in the pipeline following rate cuts.
What do the figures show?
Tourism – January
- Tourist arrivals fell by 3.3 per cent in January – the biggest decline in 8 months. Arrivals are down by 2 per cent on the year – the biggest annual decline in 8 years.
- Aussie tourist departures fell by 1 per cent, but were up 1.5 per cent over the year.
- In January, tourists from Greater China (China and Hong Kong) totalled 133,000 (mainland China 105,400; Hong Kong 27,600). Mainland Chinese tourist numbers were the weakest in 3 years.
- Over the past year 1,427,100 tourists came to Australia from China, down by 1.9 per cent on the year earlier – the biggest annual decline in 10 years.
- New Zealand is now the largest source of tourists to Australia. Over the past year, a record 1,436,900 Kiwi tourists few across the Tasman Sea, up by 3.5 per cent on the year earlier.
- A record 400,900 Indian tourists travelled to Australia over the year to January, up by 11.5 per cent on a year ago.
- In January, there were record tourist inflows from Vietnam and Mexico.
- Over the twelve months to January, tourist arrivals by state (state of longest stay) were: NSW (down 0.1 per cent); Victoria (up 5.4 per cent); Queensland (up 1.2 per cent); South Australia (up 6.6 per cent); Western Australia (up 5.9 per cent); Tasmania (up 8.5 per cent); Northern Territory (up 8.5 per cent); and the ACT (down 1.3 per cent).
- And in the month of January a record number of Aussies travelled to China, Peru and Taiwan.
Migration
- In January, there were 93,270 permanent and long-term arrivals in Australia. The annual number of permanent and long-term overseas arrivals fell from 843,980 in December to 843,340 in January, but were up 1 per cent over the year – the slowest annual growth rate in 3½ years.
- In net terms (arrivals less departures) permanent and long-term overseas arrivals fell from 294,310 to 292,770 over the year to January and were below the record high of 353,480 in the year to April 2009.
Chinese economic data – January/February
- Retail sales fell at a 20.5 per cent annual rate in the year to January/February (consensus: -4.0 per cent), down from the 8 per cent annual growth rate in the year to December. Over the year to January/February, spending fell the most at restaurants/catering (down by 43.1 per cent); jewellery (down 41.1 per cent); and automobiles (down 37 per cent).
- Industrial production fell at a 13.5 per cent annual rate in January/February (consensus -3 per cent). Production had risen by 5.7 per cent in the year to December. Over the year to January/February, production fell the most for manufacturing (down 15.7 per cent); power supply and energy (down 7.1 per cent); and mining (down 6.5 per cent).
- Fixed-asset investment fell at a 24.5 per cent annual rate in January/February (consensus -2 per cent), down from the 5.4 per cent growth in the 12 months to December. Over the year to January/February, investment fell by the most for the private sector (down 26.4 per cent) followed by state-owned enterprises (down 23.1 per cent).
- Chinese property investment fell at a 16.3 per cent annual rate over the year to January/February after lifting by 9.9 per cent over the 12 months to December.
- The unemployment rate (nationwide survey-based jobless rate) was a record-high of 6.2 per cent in January/February, up from 5.1 per cent in December.
What is the importance of the economic data?
- The Australian Bureau of Statistics releases data on overseas arrivals and departures, produced monthly and is an indicator of the health of the tourism sector. The figures are also useful in understanding spending trends and tracking migrant numbers – an indicator with widespread implications for employment, housing and spending.
- China’s National Bureau of Statistics releases its monthly economic statistics around mid-month. Quarterly GDP data is released around the 19th of January, April, July and October. China’s Customs Office releases trade data, and the People’s Bank of China releases financial statistics, around the 10th of each month. China is Australia’s largest trading partner and changes in the Chinese economy have major implications for the Aussie economy.
What are the implications for interest rates and investors?
- Central banks across the globe cut interest rates to historic lows this morning. Official cash rates in the US and New Zealand were reduced to near zero as policymakers brace for a significant economic downturn due to COVID-19 containment measures by governments and businesses.
- And the Reserve Bank of Australia appears ready to cut rates on Thursday to a record low 0.25 per cent. Governor Philip Lowe said today that, “The Bank will announce further policy measures to support the Australian economy on Thursday”. We also expect the Reserve Bank to announce details of an asset purchase program (that is, quantitative easing or QE) that will involve purchasing Australian government bonds and potentially state or semi-government bonds to reduce borrowing costs across the economy. The Bank is currently conducting repurchasing operations to provide liquidity to Australian financial markets, in addition to the $8.8 billion injected into markets on Friday.
- And the media is reporting today that a second round of fiscal stimulus measures is being considered by the Federal government in response to the coronavirus crisis hitting the Australian economy. The new economic package is likely to target the hard hit tourism sector after the decision to impose mandatory 14-day quarantine measures on all international travelers effective at midnight today.